Di Corato, Luca
- Department of Economics, Swedish University of Agricultural Sciences
Abstract
We investigate the relationship between the extent and timing of vertical flexibility and the financial choices of a firm. By vertical flexibility we mean partial/total and reversible outsourcing of a necessary input. A firm simultaneously selects its vertical setting and how to finance it. We examine debt and venture capital. Debt is provided by a lender that requires the payment of a fixed coupon over time and, as a collateral, an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility which would be acquired by an unlevered firm. Yet investment occurs earlier. With venture capital less outsourcing may be is adopted with respect to the unlevered case and the firm invests mostly later. Hence, as the injection of venture capital may reduce the need of vertical flexibility, a novel relationship can be established for the substitutability between a real and a financial variable.
Keywords
vertical integration; flexible outsourcing; debt, equity and venture capital; real options
Published in
Marco Fanno Working Paper (MFWP)
2016, number: 206
SLU Authors
UKÄ Subject classification
Economics
Permanent link to this page (URI)
https://res.slu.se/id/publ/78022